This IPO stock is poised for a big jump

Trading for stocks on their IPO date is just like gambling but many people do love to do that to buy highly inflated IPOs in the first few days, afraid of being left behind. Most often than not, it is usually a heart-broken experience as those chasing IPOs often see their share prices dropping like a stone very soon.  The most recent example is the famed IPO SNAP. Just within days, anyone who bought the stock on the first 2-3 days are still feeling the pain of bleeding. Other famous examples are Facebook and Alibaba. Of course, what I’m talking here is not about the eventual success or not of such companies but rather the initial chasing of IPOs. The risk is supper high! A better strategy to trade or invest in IPOs is to be patient to wait for the initial hype faded away and most of the IPOs will follow the same pattern: jumping 30-50%+ higher in the initial days, followed by relentless sliding down of the prices that often will be significantly below the IPO price in the weeks or months ahead.  When that happens and you still like the company, then it will be a great time to get in. This brings me to today’s idea.

 

Apptio (APTI) is a cloud-based resources management company that enables companies to analyze, optimize and plan technology investments. For sure many of you know that cloud-based technology is a hot spot at the moment with great potential. APTI is a fast growing company. While it is still not yet profitable, it is on a right track with rapid growth of revenues. Its 2016 revenues were 40% jump over 2015 and the latest quarter earnings also beat expectations. Per the company, it is expected to become profitable in later this year or early 2018. But this is not what interests me for now. Rather, APTI is following the text book pattern for IPOs, which jumped to $23 on the IPO date last September with an IPO price of $16 and then quickly got sold off thereafter. It is now trading around $12 as I’m writhing. One thing that likely bothers investors about IPOs is the potential share-dumping of insiders after the “lock-up” date. You see, those insiders who have got original shares prior to IPO are usually not allowed to immediately sell after IPO. Often there is a few months of lock-up period during which their shares cannot be traded. A common phenomenon is to see a huge shares released into the market when the lock-up date is passed. But logically this dump-effect should often occur when the stock price is well above the IPO price so that early investors can take the advantage to profit. Mar 22 was the lock-up expiration date and  there were 34 million APTI shares that could be dumped immediately. But the thing is APTI is currently 25% below its IPO and I highly doubt that those early investors would like to sell their shares all at once. In other words, we may not see a massive selling for APTI in the days/weeks ahead due to the lock-up expiration. At least we haven't seen this in the past few days, a good sign! The technical setup may also tell this story: while APTI has been relentlessly sold off in the past few weeks and has kept moving lower and lower, its momentum MACD is now showing up strong positive divergence, suggesting the downtrend of APTI may be coming close to its end. I’m interested in APTI at the current depressed price but I’ll certainly have a clear exit strategy in case I’m wrong and APTI continues to be sold off hard.